Steady cash flow is important to any contractor in the best of times, let alone during a global pandemic. With COVID-19 forcing project shutdowns, deterring workers from showing up to large work sites, and keeping owners from taking risks, your business is almost certain to see an income shortfall over the coming months — if you haven’t already.
In times like these, the best defense is a good offense. So here are some active steps to protect your money and capitalize your cash as you weather the COVID-19 storm.
Collect Outstanding Invoices
The less you have to worry about immediate needs, the more you can focus on longer term financial planning. So start by going after the low-hanging fruit: outstanding invoices. Since this is money that your customers already owe you, it’s a straightforward way to increase immediate cash flow.
If you believe a customer cannot pay their invoice due to COVID-19 circumstances, it may be in your business’ best interest to quickly file for a lien. Be sure to do detailed research, as each state has a different list of notice requirements that you need to meet before you can file for a lien. Completing the state’s list of notice requirements will assure you have lien rights in the future as well.
While it may be uncomfortable to take such aggressive action during this time, you need to collect what is owed to you so you can ensure your business’ survival. Consider the long-term impact this could have on a customer relationship and do a cost-benefit analysis to see if the short-term gain outweighs any potential burnt bridges over the long term.
Reach Out to Your Lenders
If you have a good relationship with your bank, now is the time to reach out.
Your lender should be able to extend existing credit lines and ensure you that your credit limits won’t be reduced. To help reassure your bank, consider having your owner invest more of their own cash into the company. This demonstrates a personal commitment that may make your bank more likely to extend credit.
If you applied for a Small Business Administration Paycheck Protection Program loan, you should receive it within the week. for Since labor is such a huge expense for construction firms, it comes as no surprise that our industry is leading in total applications for these forgivable loans.
Here are some additional options you should consider:
- Business interruption insurance
- Refinancing assets and investing the equity back into your company.
- Collateralized brokerage account loans
- Outside investors and lenders.
You should view your bank as a mutual partner right now. Find out how they can help your business stay cash positive as contracts slow to a halt during this uncertain time.
Communicate with Customers and Suppliers
In extenuating circumstances, sometimes suppliers will extend a payment deadline for trustworthy customers. If you have this option, take it. This can help to ensure that your company has some extra cash for that short period.
Your company might be able to offer the same extended payment deadline to certain customers to help them out in a cash-strapped time, depending on your relationship and the long-term customer value. Strengthening these business relationships by offering extended payment deadlines will only help your company when COVID-19 passes and the industry picks up again.
Project How Much Cash You Need Going Forward
Once you’ve gained some solid footing in terms of financing your immediate business needs, start forecasting 18-24 months out; ideally with the help of a financial advisor. Looking 18-24 months into the future aligns with the typical life cycle of a construction project, and will help you see the cash flow both for individual projects and overall company overhead.
Consider cutting costs by spending only on essential goods and services during this time. Since slow payments are already common in the construction industry, anything you can do to slow your burn rate as revenue slows or halts will buy you time.
If you want to weather the COVID-19 storm, you need a clear picture of how much cash you have, and how much you need to make it through the next 18-24 months. The more proactive you are in protecting your money and capitalizing your cash, the more likely you’ll be successful once the industry opens back up again.